In the latest warning from SEC Chairman Gensler that he plans to move rapidly through his agenda, the Chairman highlighted in a
speech at the CFO Network Summit his concerns with 10b5-1 plans and whether they are effective in preventing insider trading.
Mr. Gensler brought up four concerns with the existing rules around 10b5-1 plans, stating “in my view, these plans have led to real cracks in our insider-trading regime.”
- No cooling off period between implementing the plan and the first trade: Gensler pointed to research showing that 14% of sales of restricted stock in 10b5-1 plans are initiated within 30 days of plan adoption, and about two in five sales are initiated within the first two months.
- He recommended a 4 – 6 month cooling off period (previously supported by former SEC Chairman Jay Clayton as well as current Commissioners Caroline Crenshaw and Allison Herren Lee.)
- No limitations on canceling a plan: Gensler discussed his concerns that a 10b5-1 plan holder can cancel a plan at any time, including after learning material non-public information.
- No disclosure requirements: Gensler advocated for enhanced disclosure on the adoption, modification, and terms of 10b5-1 plans.
- No limits on the number of plans: Currently, insiders are permitted to enter into multiple plans and cancel them as they see fit.
It seems likely that some reform to the rule is coming. Senator Elizabeth Warren has
made her concerns about the plans clear, and media coverage of so-called “insider trading” has been largely negative. Mr. Gensler also instructed his staff to consider additional reforms, including the intersection of 10b5-1 plans and stock buybacks.
If reform is proposed, we anticipate it will include a mandatory cooling-off period of 90-120 days, mandatory disclosure when a plan has been adopted or canceled, limitations on the ability to cancel a plan, and restrictions on the number of plans allowed per individual (potentially as low as just one). In terms of timing, it is likely this will come behind climate risk and HCM disclosures and the proxy advisory rules review, but we will continue to keep a close eye on any developments.
